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39 Cards in this Set

A device used to collect and summarize information and is sometimes called a ledger account.

Accounting

The process of recording, measuring, summarizing, analyzing, and interpreting financial information and communicating this information to various users for decision-making purposes.

Accounting equity

Any business, individual, or not-for-profit organization whose financial affairs can be viewed as distinct from those of any other entity or unit.

Accrual

The accrual concept states that revenues should be reported when earned rather than when the cash is received, and expenses should be reported when incurred rather than when paid.

Assets

Economic resources from which an owner can expect to receive benefits now or in the future.

Conservatism

This principle requires that when doubt exists about the valuation of an asset or the recording of an accounting transaction, the accounting method that is the least likely to overstate income and financial position should be chosen.

Consistency

The accounting principle that requires that once an accounting or reporting method is selected, it should be used from one period to another.

Corporation

A separate legal entity created by state or federal law and is also a separate accounting entity that usually has the same legal rights and obligations as individuals. It issues shares of capital stock in exchange for money, assets, or services.

Credit

An entry recorded on the right side of a T-account

Debit

An entry recorded on the left side of a T-account

Double-entry accounting

The recording of an equal amount of debits and credits, and it is also sometimes referred to as the duality concept. By recording data in this fashion, a periodic check of the equality of the total debit and credit balances in the accounts can be made and used to help discover errors made in recording transactions.

Estimation

Since accountants divide the life of an entity into arbitrary periodic time intervals, much of what is included in financial reports is an estimate, which results in many of the amounts included in the periodic financial reports being estimated.

Expenses

The costs of goods and services consumed (used up) by the entity as a result of earning revenue.

External users

Users of accounting data that are outside or external to the company's management.

Financial statements

The standard general-purpose reports of a company and include the balance sheet (statement of financial position), the income statement, the statement of retained earnings, and the statement of cash flow.

Fiscal year

An accounting period that consists of 12 consecutive months. A fiscal period may follow the calendar year of the natural business year.

Full disclosure

Requires that all information that may be relevant to decision makers be communicated to them through the financial statements.

Generally accepted accounting principles (GAAP)

A set of rules that govern the format of the financial statements and the methods of recording the data summarized within them.

Going concern

In accounting, this assumption states that the accountant assumes that the entity is going to exist for an indefinite period of time.

Historical cost

The original purchase cost that should be used to value assets for financial statement purposes.

Internal users

The managers of a business represent one important group of users of accounting information and are generally referred to as _______ of accounting data.

Journal

Books of original entry where transactions are recorded in chronological order

Ledger

A record of all the accounts maintained by an entity.

Liability

An obligation or debt of an entity that is owed to other parties.

Matching

This principle states that expenses incurred in earning revenues should be matched with those revenues to determine net income. Therefore, expenses should be reported in the same period as the revenues to which they correspond.

Materiality

Refers to the relative importance of an item or event to the decisions that users will be making. If an item is very insignificant compared to other items, it is not necessary to follow accounting theory precisely. In determining this, the important consideration is whether knowledge of the item would influence the decision of users.

Money measurement

A common unit of measure must be used for recording economic events. In accounting, money is that measurement. Also called monetary unit principle.

Owners' equity

Represents the resources invested in the business by the owners. It is a residual claim, which means that, legally, the claims of creditors (liabilities) come first and that owners are entitled to whatever remains after creditors are paid.

Partnership

A business with two or more owners who have agreed to operate as co-owners, and who share the profits and losses of the business in an agreed-on proportion. For most purposes this is not a separate legal entity from the owners; however, it is a separate accounting entity.

Periodicity

The life of an entity must be divided into time intervals for reporting purposes, as decision makers need accounting information about the entity periodically to make decisions. Therefore, the accountant must make periodic reports about the economic affairs of the entity.

Posting

The transfer of information from the journal to the ledger.

Relevance

Requires that accounting information must make a difference in the specific decisions that are to be made from the information.

Revenue

Earnings resulting from the receipt of cash or other assets (or the reduction of a liability) in exchange for goods sold by an entity or services performed by an entity.

Shareholders

The owners of the corporation and those who own capital stock in the corporation.

Sole proprietorship

A business owned by one individual; not a separate legal entity from its owner, although it is a separate accounting entity.

Stable dollar concept

Assumes that a dollar today is worth the same amount as a dollar used to buy an asset in the past.

Stockholders

The owners of the corporation and those who own capital stock in the corporation.

Stockholders' equity

Represents the resources invested in the business by owners. This is a residual claim, which means that, legally, the claims of creditors (liabilities) come first and that owners are entitled to whatever remains after creditors are paid.